A story in Re/code not only makes it appear that Chief Executive Officer Marissa Mayer’s effort to turn around Yahoo has failed, but also that she doesn’t know how to manage people.

According to this article by Kara Swisher, published Monday, Yahoo Inc.
US:YHOO
has hired consultant McKinsey & Co. to help Mayer and her executive team decide which units should get increased investment and which should be closed or sold.

Yahoo declined to comment for this article, and a spokesperson for McKinsey said the firm’s policy was “not to talk about or comment on our client work.”

Mayer was hired as Yahoo CEO, and joined the company’s board of directors, on July 17, 2012. She had previously worked at Google (now a subsidiary of Alphabet Inc.
GOOG, +0.46%
) as vice president of product search. Mayer is the fourth CEO of Yahoo in eight years.

“It’s a bad sign that almost four years into a turnaround, you are hiring McKinsey to advise you on how to do a turnaround,” said Eric Jackson, a managing director at New York-based Ader Investment Management. Last month Jackson published an article calling for the ouster of Mayer.

FactSet

Yahoo’s stock has plunged 32% this year.

In an interview Monday, Jackson said hiring the consultant “doesn’t inspire confidence that she knows what she is doing,” adding that “typically consultants are hired by many companies as a way of passing the buck to someone else if things don’t work out.”

Then again, according to a transcript provided by FactSet of Yahoo’s third-quarter 2014 earnings call, which took place on Oct. 21, 2014, Yahoo CFO Kenneth Goldman said the company had “engaged a top-tier management-consulting firm to help us achieve cost and structural efficiencies via benchmarking and implementing best practices.”

Not a ‘people person’?

The other major revelation in the Re/code article was that Mayer, “over the last month,” had asked high-level Yahoo executives to make commitments to stay with the company for at least three years.

Mayer said during Yahoo’s earnings conference call Oct. 20, according to a transcript provided by FactSet: “The design and changes in Yahoo’s leadership team are the result of careful planning to achieve the necessary skills, passion and the ability to execute growth in our business.”

The timing of Mayer’s comment on the executive departures, along with Re/code’s report, throws Mayer’s skills as a personnel manager into question.

“If your boss comes to you and asks that, what are you going to say? No? People are going to be compelled to say ‘yes’ wether they want to say or not,” Jackson said.

He questioned why Mayer felt she needed the pledge. During the conference call, “she made it sound as though she had to make various moves to remove people and bring in others, and yet, when you hear that ... before some of those people left she asked for a pledge, it suggests a very different story than what she is telling publicly,” he said.

“All in all, it suggests a CEO who doesn’t know what the strategic vision is that she is following, and that she doesn’t have the support of the senior team around her.”

Ouch.

Being fair about Yahoo’s investments

The bulk of Yahoo’s value to investors is the company’s investment in Alibaba Group Holding Ltd.
BABA, -0.21%
and the company’s 35% stake in Yahoo Japan. Those investments were made long before Mayer took over Yahoo’s helm.

Yahoo valued its Alibaba investment at $22.6 billion as of Sept. 30, down 43% from its value of $39.9 billion a year earlier. But Jackson pointed out that bashing Yahoo for the timing of its spin-off of a unit holding the Alibaba stake was unfair, “since they were under a lockup agreement with Alibaba for a year after Alibaba. They couldn’t have sold it until September of this year, after it had already gone down.”

Investors’ decision on whether to hold Yahoo’s shares now, according to Jackson, are based on how you value the Alibaba stake.

“Some people think you have to tax it fully; some people think it will not be taxed,” he said.

It remains to be seen if the Internal Revenue Service will consider the spin-off of the Alibaba stake a tax-free event.

The value of Yahoo’s core business

According to FactSet, Yahoo’s earnings before interest, taxes, depreciation and amortization (EBITDA) for the past 12 months totaled $642 million. That’s down from $1.42 billion during the 12-month period through June 2012 before Mayer became Yahoo’s CEO in July 2012.

That may seem like an unfair comparison, because Yahoo has increased its spending as Mayer has attempted to turn its long-term performance around. But after more than three years, and heading into another reorganization, investors have a right to wonder where those efforts might lead.

Jackson said that if the Alibaba and Yahoo Japan sakes are “stripped away,” the value of “the part of Yahoo Mayer has control over, is, essentially, zero.”

Considering how popular Yahoo’s website is, and the value of services like Yahoo Finance, it’s possible that the company is not being valued properly. After the Alibaba spin-off is completed, investors will need to reevaluate Yahoo’s stock.

Philip
van Doorn

Philip van Doorn covers various investment and industry topics. He has previously worked as a senior analyst at TheStreet.com. He also has experience in community banking and as a credit analyst at the Federal Home Loan Bank of New York.

Intraday Data provided by SIX Financial Information and subject to terms of use. Historical and current end-of-day data provided by SIX Financial Information. All quotes are in local exchange time. Real-time last sale data for U.S. stock quotes reflect trades reported through Nasdaq only. Intraday data delayed at least 15 minutes or per exchange requirements.